Real estate and construction economics at ground level

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downtown vancouver
skyline condo
Vancouver condos — like most major North American cities — the condo boom has changed the skyline

I’m in Vancouver, BC for a family event. Yesterday, my brother showed me around his business site, in an area (when I was a child, 50 years ago) known for somewhat dilapidated but still functioning industrial structures.

He oversees a music and arts rehearsal space business, essentially converting rough (think Class C-) office or warehouse space into studios for music (and more recently drama) rehearsals.

It can be a challenge to find suitable space. The artists/musicians don’t want to work in the distant suburbs, and the lower-rent commercial and industrial space is rapidly being converted into high-rise condominiums.

The sweet spot — a landlord who has assembled the property for condo developments but isn’t ready to build — provides my brother the lower-rent leases he needs for his business. These leases, of course, are conditional — there is a demolition clause which allows the owner/developers to give relatively short notice (currently one year) to break the lease and kick him out.

Right now, my brother’s business is thriving. He has been able to occupy space formerly used by recently bankrupted (but previously long-established) theatrical company. This space includes a massive theatre props collection, which he rents.

Just out back of his leased collection of land-assembled old buildings, you can see the new Vancouver — people moving into recently built condos, as cranes and construction crews finish up more projects. And, as you would expect, the new residential residents don’t like very much the previous (and in a few places still operating) old industrial or more recently musical rehearsal activities. They file noise complaints.

You can look at these matters with different perspectives. Of course, there’s lots of construction work around with the demolition and condo building processes. There are intriguing observations about the development and economic eco-systems (and how my brother finds viability within an unstable niche between previous land use, demolition and gentrification.)

And there are interesting questions about long-term value. Condos seem to be relatively easy to build, when you can get the land and clients, but who is better off in the long-run — the person who can find the money for a freehold single family home or the condo purchaser? The more I watch the market, the more I realize that condos are not good investments — because anytime land values rise enough to justify intensification and condo construction, developers will meet the demand with more structures. And they’ll do that by purchasing whatever lower-density land they can find — meaning the freehold properties will have much longer and lasting value for their owners.

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